You bought something using your credit card or debit card. And then something happened you didn’t anticipate: You never received what you paid for. You tried to communicate your disappointment but the merchant wasn’t forthcoming. Perhaps the merchant doesn’t believe that you didn’t get it. Maybe the merchant said there were no refunds or returns. Maybe the merchant told you to mail it back, but that would cost more than it was worth. Or maybe the merchant never answered the phone, replied to your emails or worse yet, closed down and disappeared without a trace.
In cases such as these, you can apply for a chargeback from the bank that issued you your card. What is a chargeback? It’s a retroactive cancellation of a transaction made using a credit card or debit card.
Is a chargeback easy to obtain?
If the transaction in question was not authorised by the cardholder, it should be granted as soon as you notify the bank. That is because an unauthorised transaction is by definition fraud, and cardholders are not held responsible for fraudulent charges.
Can you get a chargeback for an authorised dispute? Yes, but that may be more difficult. If you have a receipt that specifies what goods you ordered, you can prove it wasn’t delivered, and the merchant didn’t rectify the problem, then your bank will probably approve it quickly. When the purchase involves a physical product that was never received as ordered and there is no documentary evidence it was supplied it ought to be an open and shut case.
But not all authorised transactions involve goods. What about authorised transactions for services? Unlike goods, services are amorphous, so how can it be proven they were never received? In that case, the first stumbling block is producing unambiguous documentation that the merchant cannot successfully dismiss.
The second stumbling block is the deadline imposed by the card network. Visa provides cardholders between 90 and 540 days to apply for a chargeback, depending on the circumstances. Mastercard provides up to 120 days from the transaction date. But it isn’t 120 days across the board. It may be less. And in certain cases, Mastercard will extend that to 540 days, like Visa. The arithmetic is complicated.
The third stumbling block is the ‘reason code.’ What is a reason code?
When filing chargeback requests, cardholders have to specify a reason that justifies why they should win the dispute. These reasons are coded. The problem is that the terminology the card networks and banks use is not necessarily the terminology consumers regularly use. It’s easy for a cardholder to confuse these reasons and opt for the wrong code. Why is the reason code important? Because a card transaction can be disputed only once. There are no second chances. Choose the wrong reason code and you are guaranteed to lose.
How do you know that you have submitted the chargeback request correctly? If you have followed the chargeback guidelines prepared and updated on a regular basis by the credit card networks, then you have. How do you get a copy of the chargeback guidelines? They are supplied to issuing banks and can be accessed online. But most cardholders have never heard of them, so they rely on their banks to get it right by default.
Do banks evaluate chargebacks objectively?
You can’t depend on it. Like cardholders, bank dispute department employees probably have never read these guidelines either. They are dense, even opaque, and often impenetrable. And they can be up to a thousand pages long and are updated on a regular basis. Therefore, the rules that govern a specific case today may be different from those that existed the last time the bank employee checked.
Moreover, card networks do not test or license the bank employees who are charged with the responsibility to evaluate chargeback requests in accordance with their guidelines. While the card networks do regularly hold training sessions around the world for bank employees, attendance is voluntary. No bank is penalised for ignoring them, so they have every reason to ignore them, especially because they bear the costs of attendance, which can add up. The result is that there are bank dispute departments that are unfamiliar with the reason codes, the intricacies of the chargeback deadlines and do not even know that service-related chargebacks are permitted. In addition, many banks farm out some or all dispute duties to external firms, which are responsible to no one within the credit card ecosystem. The result is chaotic. We have seen many cases, for example, in which the exact same service-related dispute can be resolved differently by two different banks, or even within the same bank.
So what can go wrong with a chargeback? Because of these shortcomings, the decisions made by bank dispute departments are more often than not based on subjective, rather than objective criteria. They shouldn’t be. Cardholders deserve better.